Federal Obligations to Small Businesses, FY 2013-FY 2017

What Makes a Business “Small”?

The US Small Business Administration (SBA) defines a business as small based on a list of industry codes described by the North American Industry Classification System (NAICS). NAICS codes are organized across broad sectors of related industries, with many groups of subsectors under each larger sector. These codes have been adopted by the federal government as a standard way of classifying government business. These codes can refer to work as broad as “Engineering Services” or as specific as “Chili con carne canning.”

Size standards that qualify a business as small are reviewed and updated periodically. Typically, these standards are based on revenue and/or employee count, and they vary by industry. At the time of posting, the current set of size standards has been in place since January 1, 2012 (https://www.sba.gov/sites/default/files/Size_Standards_Table.pdf).

The following report will look at FY 2013 - FY 2017 and highlight a few industry classifications that have received large amounts of spending under small business programs.

 

Top Industries for Small Business Obligations, FY 2013 - FY2017

The top industry requirements in the small business space are Information Technology (IT), Architecture, Engineering, and Construction (AEC), and Professional Services are the top categories. Obligations in the remaining industries are roughly half compared to each of the top three for this time period.

 

Top NAICS for Small Businesses

Across all industry categories, this data can also be viewed as small business obligations separated by more specific NAICS codes. From FY 2013 through FY 2017, the reported obligations made under the top five NAICS codes for small businesses totaled more than $20B each. These NAICS represent broad categories of work that frequently come up in the context of work being sought by the federal government. This includes industries such as: Information Technology (IT), Research and Development (R&D), and Architecture, Engineering, and Construction (AEC). Each of these classifications shows overall growth from FY 2013 - FY 2017. The least dramatic change among the top five NAICS from year-to-year has been in the construction market, which may be driven by a number of factors, including project lifecycle, time to completion, and project size.

One interesting outlier up above is the tenth largest NAICS, 423940: Jewelry, Watch, Precious Stone, and Precious Metal Merchant Wholesalers. Initially the idea of the government making and securing jewelry may seem strange, but note the inclusion of high-value “precious metals” purchases by some agencies, such as the US Mint. These require large amounts of materials that may be procured under this code. In fact, FY 2017 spending obligations from the US Mint were roughly double that of the Federal Highway Administration. From that, 57% of the spending obligated by the US Mint went to small businesses.

 

NAICS Codes with the Highest Percentage of Obligations Made to Small Business Set-asides

For those that have more of an interest in looking at the categories that receive the highest proportion of obligated spending, the above chart and additional highlights rendered provide a percentage-based insight of the total obligations. In this view, one can see which NAICS codes might be utilized primarily for Small Business set-asides instead of those that are utilized for competition by a mixture of business sizes. This only represents a percentage of obligations in a given category that went to small business, and the actual dollar amounts may change yearly. For example 541512, with nearly 100% of federal obligations going to Small Business set-asides, also grew from $988K to over $1,676K – an increase of nearly 70% in federal obligations over that same time period.

 

Top NAICS within the IT requirement

This chart provides further insight into the NAICS within the IT primary requirement. All of the top 5 NAICS for small businesses within the IT requirement are also present in the overall top 10 NAICS for small businesses. We can once again see the increasing obligations in the top two categories, and relatively level obligations across the remaining NAICS codes in this set. For example, the data can be restricted to those top two NAICS, with obligations in FY 2017, and separated by departments.

This chart represents the top departments funding small business set-asides under those two NAICS for FY 2017. The Department of Defense and the Department of Veterans Affairs are responsible for the most combined spending obligated to small businesses in FY 2017. Additionally, the top three departments have a relatively even amount of spending for 541512 in this time frame, while a few departments have relatively few obligations comparatively under that NAICS. Subsequently, the spending obligated by the Department of Defense can be expanded to an even more detailed picture of the funding sources for these obligations, all the way down to funding at the office level.

The majority of obligations for these NAICS are attributed to the Department of Defense itself and higher level agencies. The top two funding offices shown here are of a similar scale, and after that it begins to drop off fairly sharply. It’s nearly invisible in the above chart, but the obligated spending for DLA Aviation under 541512 is actually -$130, which is $130 de-obligated. Similarly, looking at the second-highest funding source for these categories, the Department of Veterans Affairs, a picture emerges of spending obligations from the top civilian agency, as well.

For Veterans Affairs, the spending maps out fairly differently. Only four funding sources used small business set-asides for these NAICS. The higher-level department and agency funding has only a small amount of spending obligated. In this case, the Office of Acquisition, Logistics, and Construction is responsible for the vast majority of funding from the entire department.

The data behind federal spending for small businesses is a varied landscape. With the right set of tools and a few questions, federal spending obligations can be analyzed in many different ways – either with a targeted focus, or just by following curiosity and asking more questions. While every investigation may not lead where one expects, there’s always something to be gained from having a better view of the market.